Islamic banking

First, Mr. Hannan's article identified him as a former government secretary instead of revealing his immediate past designation as the ex-chief of the said bank, which would have been more relevant.

Mr. Hannan was one of those associated with the formation of the bank and for this apparent reason he was made the chief of the bank after he retired from government service.

In order to justify operation of Islamic shariah-based banking under Banking Companies Ordinance1962, he commented that the Bank Company Act 1991 is not for conventional banks only, but for all banks.

He further said that the only difference is that when the Bangladesh Bank gives licence to an Islamic bank, they add one more condition: the bank should follow Islamic shariah.

However, this cannot be an adequate substitute for a specific clause to allow interest-free and profit/loss sharing banking. Shariah law on Islamic banking was not and is not codified in our laws. A simple condition added to banking licence to do banking under Islamic shariah law could not have legalised interest-free banking.

The Banking Companies Ordinance 1962 provided for interest-charging system of banking only. On the other hand, the Islamic shariah-based interest-free profit/loss sharing banking concept is clearly and directly opposite to the interest-based banking provided for in the Banking Companies Ordinance 1962. The difference is fundamental.

Since Banking Companies Ordinance 1962 provided for interest-charging banking only, the Islami Bank Bangladesh Ltd in its Memorandum & Articles Clause 2(xiii)(b) at p. 10 provided as follows:

"The Company is a Public Limited Company within the meaning of section 2(1)(13A) of the Act, and it shall carry out all or any of the objects enunciated in the Memorandum and Articles of Association and will operate within the framework of the Banking Companies Ordinance 1962 and existing banking laws, rules and regulations subject to such minor adjustments as may be considered essential for an Islamic Bank to function and also the directives of Bangladesh Bank from time to time issued."

Islami Bank Bangladesh Ltd started its interest-free and profit/loss sharing banking business in 1983 when they started receiving investment proposals from Muslim entrepreneurs attracted by interest-free finance.

However, no amendment to incorporate "interest-free and profit/loss sharing banking business" to give legal foundation to this type of banking in Bangladesh was arranged in the Bank Company Act 1991 or until now, calling into question the legality of such operations.

A simple clause added to the format of the banking licence to the effect that the bank concerned shall follow Islamic shariah is not enough in place of the specific need to codify interest-free banking.